CAIRO: “This is the most interesting stock market in the region, Vera Trojan, senior vice president, partner, and equity portfolio manager for Wellington Management Company, said Sunday
“We are impressed with the efforts of the leading companies on the stock exchange, and [their] progress in transparency, disclosure and investor relations efforts, she added.
Trojan expressed admiration for the “strong economic fundamentals of the country, speaking at a conference with Investment Minister Mahmoud Mohieldin.
Following meetings with potential investors in Singapore and the annual Euromoney Egypt Investor Conference in Hong Kong, Mohieldin addressed the question “Is Egypt Attractive for Investment? before the American Chamber of Commerce (AmCham) in Cairo.
Representatives from Boston-based wealth management association Russell 20-20 joined the minister to convey how Egypt appears to large institutional investors such as the Canada Pension Plan Investment Board, also represented.
The chairman of the Russell 20-20 Association and Chairman of Altaira Wealth Management Michael Phillips, explained that his company’s role was to “help our hosts get a better understanding of what’s important to global institutional investors.
“We are particularly impressed with how the country [Egypt] has evolved after the reforms of 2003 and 2004, Trojan said, adding that Egyptian companies expanding within the region serve as useful bellwethers for foreign investors.
Meanwhile, Trojan articulated the specifics of Egypt’s précis. Listing Egypt’s solid record of growth, its positive current account balance and positive sources of foreign exchange as assets, she emphasized the large population’s potential both for consumption and building a productive labor force.
She applauded Egypt’s “strong banks on their potential for consumer lending, before addressing Egypt’s cons: inflation, fiscal deficit, high stock of government debt and risks posed by a high unemployment rate.
Donald Raymond, senior vice president of the Canada Pension Plan (CPP) investment board, spoke as an institutional investor. Although his data demonstrated that the largest share of CCP’s investments reside in foreign developed market equities at 22 percent, he said that investing in emerging markets is a growing priority.
Room for reform
Mohieldin acknowledged that many of the reforms that attract investors “would have been difficult to introduce a few years ago.
He explained that efforts have been made in “fiscal reforms in particular, to generate sustainable funds, to work for reform of taxes implemented to generate required funding for development and growth. [Egypt is] working on.gaining credibility for maintaining the discipline required for the monetary sector.
He spoke further about Egypt’s strengths, listing the latest inflation figures as “close to single digit and the core inflation measure as close to the target range of 6 to 8 percent.
He addressed fears that foreign investors exploit emerging markets without offering long-term benefits in return; because Egypt is “not resource rich, investors aren’t after extraction, we have some natural gas and oil, but China and India.are mainly after the capacity of Egypt as a well-diversified economy.to be a gateway to region.
Disappointments include Egypt’s delayed optimization of its “unique location by not developing its ports, resulting in transaction costs remaining high.
Mohieldin lauded the financial services industry that “as a sector is growing at 8 to 12 percent, while communications and information technology is growing at 14 percent in real terms.
“[Egypt has seen] 55 percent recovery last year after the crisis year.it is a liquid and vibrant market in general.[and has seen an] increase in net trading by 1.2 to 1.5 billion every year in the last five years.
In his only reference to his meetings in Asia, he mentioned, “Many people I met in Hong Kong said, ‘Egypt has been there for 5,000 years. We know the history but were not interested in doing business there because of its sluggish growth in the 80s and early 90s. But with [pre-crisis] growth of 7 percent, we’re now keen to get into the country’.
He finished by admitting, “Many of the measures are not pleasant; reforms mean bearing the pain of gains enjoyed today and in the future.
The minister and panel responded to questions, first fielding an inquiry on whether the People’s Assembly had successfully halted the privatization process.
Mohieldin said, “We’re working on a draft law introduce to parliament to rely on the stock exchange for flotation of publicly owned companies.
The panel was asked to give their opinions of rating companies, following the crisis and the on-going challenges in Dubai and Greece.
Phillips of Russell 20-20 answered, “Rating agencies. have a lot to answer for. I do not put the same credence to them as before the crisis.
Vera suggested that ratings serve as a “report card, where “you get a good grade for good performance. In her opinion they “still have an important role to play. serve as an incentive for improving performance. The problem is not the idea, but with the rigor of the analysis.
In response to a question about the determination of American regulators to oversee investment banks to avoid another global financial meltdown, Phillips explained the intention to “move to a new regulatory structure [of] activity-based regulation, not entity-based. Instead of bank regulators and investment bank regulators, you’d have some looking at credit, debt or derivatives, across entity barriers.
Mohieldin expounded on the subject from an Egyptian perspective, saying “the issue of regulation is sensitive, because whatever is being said by leading countries impacts emerging markets. [We are] very much concerned. need effective regulation. [to] not micro-manage and prevent growth and mobilization of savings.
“[We] need to listen to the market and lawmakers at the same time, then develop an accurate framework of regulation that is not subject to the reaction of the general public.
The decision to feature only Canadian and American representatives on a panel of this nature, only days after his return from Asia, seemed perhaps intended to reassure Egypt’s traditional investors in North America and Europe that Egypt has not completely given up on their slow rate of recovery in favor of Asian money.
However, the lack of dialogue on the changing landscape of foreign investors seemed pointedly west-biased, although the market itself has shifted decidedly eastward.
